Major PC vendors riding high

Low prices and strong economies pushed PC sales past expectations for the
second quarter, according to two research houses. Dell(DELL), Compaq, and
Hewlett-Packard
(HWP) were standouts, while smaller vendors are hurting.

International Data Corporation
reported a 19 percent increase in shipments of PCs in the U.S. during the
second quarter over the same quarter in 1996, two points higher than
expected, said Kevin Hause, an analyst with the company. Meanwhile, Dataquest said that U.S. shipments
increased 21.9 percent during the quarter. IDC reported that
unit shipments worldwide grew 15 percent, while Dataquest chalked up 17 percent
growth. All figures are preliminary.

U.S. PC Shipments

Vendor

Q2 1996Market Share

Q2 1997Market Share

Percent Growth

Compaq

11.6%

13.5%

38%

Packard Bell-NEC

11.6%

9.6%

-2%

Dell

6.7%

9.3%

64%

IBM

8.3%

8.8%

27%

Hewlett-Packard

5.7%

6.6%

37%

Others

56.1%

52.2%

10%

Source: International Data Corp.

"You saw a lot of pessimism around the PC Expo time frame (which took place
in June.) It looked like it would be a horrible summer," said Scott
Miller, senior industry analyst at Dataquest. "But fundamental demand is
still pretty strong."

"The economy was a key determining factor. Where the economy is going like
gangbusters, like in the U.S., sales went like gangbusters. In Japan and
Korea, consumers aren't buying as much and businesses aren't investing,"
said Hause.

The surge in sales, though, comes with its ugly side, especially for
manufacturers other than Compaq, IBM
(IBM), HP, and Dell.

All four companies increased their market shares during the quarter and
exceeded overall sales growth, often by quantum leaps. Compaq, for instance, remained the No. 1 brand in the U.S. and
worldwide by growing at roughly twice the rate of the industry as a whole.
The Houston-based company grew 38 percent in the U.S. for an 11.6 market
share and 42 percent worldwide for a 9.7 percent share, according to IDC.

Worldwide PC Shipments

Vendor

Q2 1996Market Share

Q2 1997Market Share

Percent Growth

Compaq

9.6%

11.7%

42%

IBM

8.6%

8.8%

20%

Hewlett-Packard

4.1%

5.5%

58.4%

Dell

3.9%

5.3%

61.4%

PackardBell-NEC

5.9%

4.9%

-1.7%

Others

68%

63.7%

9.7%

Source: Dataquest

Dataquest said that Compaq grew 48.9 percent for a 14.8 percent share
domestically and 42 percent for a 11.7 share internationally;
shipments were 1.035 million units and 2.2 million units, respectively.
IBM, the No. 3 vendor in the U.S. in both polls, grew by approximately
27 percent. Worldwide, the company grew 20 percent for an approximate 8.8
percent worldwide share. The figures for IBM were 632,000 domestic
shipments and 1.668 million international.

Dell's unit shipments grew by over 50 percent in both the U.S. and
worldwide, according to both polls. And while ranking fifth in the U.S., HP
became the No. 3 manufacturer worldwide, with a 48 percent growth
and a 4.4 percent market share, according to IDC. Dataquest chalked up a
similar surge for HP.

The only top-five manufacturer to experience a decline was Packard Bell, which saw an
approximately 2 percent decrease in market share, according to both companies.

PC prices, which were slashed by most manufacturers during the quarter,
will continue to drop. The additional manufacturing capacity and efficient
manufacturing techniques being deployed by Compaq, HP, IBM, and Dell will
also begin to pay off. As a result, the middle manufacturers will have to
learn to live off thinner margins, or seek out partners to survive.

"The middle tier is hurting pretty badly. The top tier invested in
manufacturing changes. It's not clear that a smaller company can do that
sort of thing," Miller said. "Over the next six months we will see if they
are able to keep up."

"The guys who will feel the brunt of it are the ASTs and the Digitals" commented Hause, who predicted that exit strategies would start
to be played out in public over the next 12 to 18 months.